Investment capital floods cybersecurity market

Tech giants’ growth plans’ safety at issue

SEATTLE Investment capital continues to drench promising cybersecurity companies.

HyTrust, which provides security systems for cloud environments, is the latest beneficiary. The Silicon Valley- based firm on Monday announced it has received $ 18.5 million in an oversubscribed Series C funding round.

Edward Snowden’s whistle- blowing, it seems, demonstrated how brittle the Internet cloud is. If a low- level government employee can traumatize U. S. covert operations with a few clicks of his mouse, how robust can Internet- enabled services truly be?

“You have this new concentration of risks in the cloud, which is driving the creation of new threat vectors,” says Eric Chiu, HyTrust’s president and co- founder.

These new threats, in turn, create uncertainty about the Internetfueled growth plans of Intel, Google, Microsoft, Yahoo, Apple, Facebook, AT& T, Verizon and just about any tech hardware, software or services company you care to name.

That’s a big problem, so cash is being thrown at possible resolutions. Lawrence Pingree, research director at tech research firm Gartner, has put out a widely cited metric as to how much will be spent on strategies to keep cyberspies, data thieves and hacktivists at bay. He predicts global spending on information security will total $ 64.4 billion this year, and he expects it to grow, on average, 8.7% annually through 2017.

Much of that windfall will go to innovative technologies, enriching investors smart or lucky enough to back the right ponies.

Then there are mergers and acquisitions. So far this summer, network security firm Proofpoint has announced plans to acquire Web security vendor Armorize Technologies, Cisco has signaled its intent to swallow up intrusion prevention vendor Sourcefire, and IBM just announced the buyout of online banking security company Trusteer.

Cisco’s bid for Sourcefire is the stuff of venture capitalists’ exit strategy dreams. Cisco agreed to pay $ 2.7 billion, or roughly 10 times Sourcefire’s annual revenue, a huge premium. In 2006, federal officials put the kibosh on a proposed acquisition of Sourcefire by Israeli firewall vendor Check Point Technologies for $ 225 million. Sourcefire then secured $ 20 million in venture funding from Meritech Capital Partners, which now looks like an inspired wager.

Meanwhile, FireEye, a pioneer in detecting malicious software within company networks, just announced its plans to go public. In January, FireEye secured $ 50 million in venture funding. The company is now in a silent period. But CEO Dave DeWalt, former CEO of McAfee, was singing its praises at the Black Hat cybersecurity conference in Las Vegas a couple of weeks ago.

DeWalt hopes to surpass Palo Alto Networks’ successful July 2012 IPO. The Silicon Valley firewall supplier went public at $ 42 per share and has been recently trading at about $ 47 for a market capitalization of $ 3.6 billion. Keep in mind, Palo Alto Networks did not exist until Check Point alum Nir Zuk founded it in 2005.

“Right now, there are a lot of latestage investors looking for billiondollar paydays,” says James Foster, CEO of security start- up Riskive. “The VC’s want to know, ‘ Can you get me to an IPO and show me a billion dollar return?’ ”

“You have this new concentration of risks in the cloud, which is driving the creation of new threat vectors.”

Eric Chiu, HyTrust